If a bank invested $57 million in a two-year asset paying 10 percent interest pe

Question

If a bank invested $57 million in a two-year asset paying 10 percent interest per year and simultaneously issued a $57 million one-year liability paying 7 percent interest per year, what would be the impact on the bank’s net interest income if, at the end of the first year, all interest rates increased by 2 percentage point? (Input the amount as a positive value. Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. (e.g., 32.16))

If a bank invested $57 million in a two-year asset paying 10 percent interest per year and simultaneously issued a $57 million one-year liability paying 7 percent interest per year, what would be the impact on the bank’s net interest income if, at the end of the first year, all interest rates increased by 2 percentage point? (Input the amount as a positive value. Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Present Net Interest Income

= 10%*57 - 7%*57=1.71

If the yields go up by 2%

Then the NII would become

=12%*57 -9%*57

=1.71

Hence there would be no change in net interest income

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.